Eric James Newman

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What Are Bitcoins and How Do They Work?

Bitcoin is the most popular cryptocurrency out of hundreds of others. Cryptocurrency is a type of digital or virtual currency that you can use to pay for goods and services. The value is determined by a myriad of factors. Bitcoin is literally one of the most versatile cryptocurrencies around the world.

Essentially, cryptocurrency is supported by code using complex algorithms that prevent unauthorized copying or fraudulent use or creation of bitcoins. The way it works is that “miners” use a special code to find new bitcoins based on transactions. It’s essentially a digital token that has no physical body, and it represents some unit whose value is usually based on fiat money such as the US Dollar.

Bitcoin is the name of the network that the tokens are stored on, and is essentially a payment network not much different from something like PayPal. The system is decentralized and not run by any overriding governing body or state. There are other open source platforms that are similar in nature that you may understand such as Wikipedia, Moz.com/ugc, and others.

Users are anonymous and identified by a public key. You can have more than one public key and they can be controlled by your pseudonym, or username, or handle – depending on what you want to call it. This enables you to privately purchase the products and services that you want to buy without even the seller knowing who you are in some cases.

You can accept bitcoin as payment, and you can trade bitcoin for fiat money or even other cryptocurrencies. Bitcoin value is subject to wild swings and can be very volatile. If you want to get involved in investing, it’s important to understand that upfront. It can be a wild ride with crazy ups and downs of the value of your bitcoins.

Every transaction ever made using bitcoin is recorded by everyone including miners, by following the bitcoin protocol maintained in the public ledger. The units of exchange can be very small, but they can never be bigger than the number of bitcoins determined to exist in the first place. There are 21 million bitcoins and that’s finite, but the value of each bitcoin and fractions of bitcoins is infinite.

Miners compile recent transactions into blocks, creating block chains that can continue to grow. When a miner solves and proves the work (confirms and records the transaction), new bitcoins are created. It’s an amazing process that some very smart people figured out and if you learn all that you can about it, you will be less likely to make mistakes and get defrauded. You can earn bitcoins by buying them, mining them, or earning them through providing services.

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